...Research has uncovered a great imbalance in retailer-supplier negotiations. Using a database compiled from a group of more than 400 suppliers, over 15,000 trade promotions were analysed across 30 different categories over the past five years.
Incredibly, it has found that over the past year, the leading grocery retailers held on to 86% of the total incremental profits generated from "joint" retailer-supplier promotional activity. Many suppliers may not even know the exact figure for their business. And worse still for them, this lion's share of profit being kept by retailers has grown by 10% in the past five years.
What's more, the percentage of sales made on promotions are increasing each year for heavy promoters. The data shows that 46% of suppliers now sell 40% of volume on promotions - up from 16% of organisations three years ago.
A Cabinet Office report earlier this year showed that £10bn-worth of food is thrown away each year, and that we should cut back our spending. The Government has claimed that buy-one-get-one-free-style promotions, key consumer goods sales tools, are a major contributory factor to this level of waste. But price promotions play an important part in driving volume through consumer goods companies' factories.
Not surprisingly, therefore, the smart money is going into finding ways of redistributing the wealth - by increasing the manufacturer's share of the promotional profit pie. This is because trade spend is probably the biggest area of expenditure where there is genuine scope for immediate and significant improvement. It is the biggest "win".
As they say in the US, just do the maths. A company making a bottom line 10% margin, spending 20% on trade promotions, only has to increase trade spend efficiency by 1% to generate a 2% improvement in bottom-line profitability.
In spite of this, there are still consumer-goods manufacturers stuck in the past, bemoaning the rising cost of manufacturing on the one hand and the increasingly aggressive retailer on the other.
The traditional, default solution is to cut "discretionary spending", and at the top of this list is usually advertising investment. The argument is that "brand preference" is less important than "promotional discount" at a time of economic downturn, and that short-term volume returns (and sometimes profit) are almost always higher for promotional activity.
With the packaged-goods sector investing nearly £2bn each year in advertising, cutting back media spend in order to fuel trade promotions seems like an easy answer. But the evidence suggests that this approach may be more flawed than even the most ardent advocate of (or apologist for) media spend might imagine - not least because it makes no allowance for a long-term advertising effect.
More enlightened thinking now favours looking at advertising and promotional strategy as interdependent pillars. One should not be compromised to the advantage or otherwise of the other.
The advertising needs of the brand, which are usually long-term, have an enormously important role to play, provided their role is properly co-ordinated with promotions.
Swapping one for the other is less effective than introducing a programme of promotional best practice which can benchmark your performance against that of your peers....
With a long history of volatility, the Nikkei took a 10% decline. But, here again is another bailout plan scheduled for 2009. A 'reserve pool' is probably a better approach and any fiscal relief from the pool can be measured before it is released in anticipation of volatility.
East-Asian leaders set up regional economic safety net (click here)
Albuquerque Express
Friday 24th October, 2008
East Asian leaders have agreed to set up an 80-billion-dollar fund by mid-2009 to fight the global economic crisis.
A major Japanese share fall during the week provided the impetus for the meeting, in which leaders of South Korea, China, Japan and the ten members of the Association of Southeast Asian Nations, agreed to accelerate multilateral cooperation to create an 80 billion dollar fund and establish an independent market surveillance organization for the entire region.
The new fund will take the place of the Chiang Mai Initiative, which came into being in 2000 in the wake of the 1997/98 East Asian financial crisis.
7,649.08
–811.90
–9.60%
China to continue efforts on regional forex reserve pooling scheme (click here)
www.chinaview.cn
2008-10-24 00:51:58
BEIJING, Oct. 23 (Xinhua) -- China welcomed the scheme to establish a foreign exchange reserve pooling arrangement under the framework of the Association of Southeast Asian Nations (ASEAN), as well as China, Japan and Republic of Korea, Foreign Ministry spokesman Qin Gang said here on Thursday.
"The ASEAN members plus China, Japan and Republic of Korea, had unanimously agreed on the arrangement," he said at a regular press conference....
